RBD have signed an agreement with master franchise holder 'YUM brands' which provides for a committed investment by the group of $35m into the KFC store transformation project over a three year period ended 31 August 2008. $25.8m of this amount has already been spent. (source 2008 Interim Report as at 10th September 2007, p17 Note 8, )
RBD have 87 KFC stores. As at the February 28th 2008 balance date, 30 stores have been renovated.
Obviously the $35m RBD have agreed to spend is not going to transform all 87 stores. However, it is my view that the transformation project has been so successful RBD will continue it beyond the $35m commitment previously agreed. But from August 2008, the timing of the transformations will be to RBDs scheduling, not YUM's.
Around $NZ1m for each KFC store.Quote:
What is the cost per store rennovation?
That depends on the profitability of the KFC stores transformed. Will the increase in sales justify financially the capital costs of the renovations and staff retraining? Past experience is no guarantee of future performance. But in the FY2006-2007 annual report on page 10 we read:Quote:
Will they need to carry more debt to do the rennovations?
"The transformation process continued to go from strength to strength, averaging 20% growth from upgraded stores." (21 transformed stores completed at the time that statement was written.)
Given that nine transformations happened over the 2007-2008 financial year, and debt did not increase, I would have to say that RBD need *not* carry more debt to continue with the renovations.
'Pizza Hut' is also franchised from master franchise holder 'YUM'. It is possible, although I have no proof of this, that Pizza Hut and KFC are 'joined at the hip' and that RBD will not be allowed to give up one franchise and still retain the other. I don't think Pizza Hut will become saleable anyway until the store network becomes profitable at EBITDA level.Quote:
2. Will they look at selling Pizza Hut? Doesnt make sense to keep it while it continues to lose market share to Dominos. Can RBD afford to rennovate Pizza hut with such a high debt level?
Pizza Hut are being transformed into a wholly 'delco' chain. That isn't an expensive process. All you need is an oven, a counter and a cash register. The PH transformation is largely complete. But the transformatioon will become complete when the last 'red roof restaurant' is closed as the associated expensive sit down restaurant lease comes to an end.
I know that new director Sue Suckling wants them to install more comfortable chairs into the Starbucks stores. Does that count as a renovation :-PQuote:
3. I have noticed that some of the Starbucks coffee places are starting to look tired and the staff services are getting very slack. The services at some Starbucks are so bad they have lost me as a customer. Will they need to rennovate the Starbucks stores?
I think RBD have first refusal on introducing any of the other YUM brand restaurant concepts.Quote:
4. Are they looking to bring in any new businesses?
Hopefully they won't introduce more because, quite frankly, I think management are fully stretched looking after the three franchises they have already.
You are right to be sceptical Doctor. No investment is risk free. I think the latest seasonal stats show restaurant and takeaway sales down, possibly due to budgetry constraints caused by high interest rates and petrol prices. But people are not going to give up their entertainment. Even if it means swapping going out for a meal and on to a movie for eating a pizza at home and watching the Telly! Personally, I don't see RBD suffering if things get tighter - but I could be wrong.Quote:
RBD looks cheap to me at these levels, but I have the above concerns that stops me from investing in it.
SNOOPY